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Managerial Accounting

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Moderate

Overhill ARR Average Investment

MGRACT-Z9WRUW

Overhill Company is considering an investment in a piece of equipment with a net initial investment of \$180,000. Annual cash increases in operations would be \$160,000 in Year 1, \$20,000 in Year 2, and \$90,000 in Year 3. The equipment’s useful life is 3 years, and has no salvage value at the end of its useful life. The company uses straight-line depreciation. Ignore income taxes.

Calculate the accounting rate of return using average investment.

A

16.7%

B

33.3%

C

100.0%

D

111.1%